Motorola’s History Lesson for Google

Motorola Vice President John F. Mitchell shows off the DynaTAC portable radio telephone in New York City in 1973.

(This blog was corrected. An earlier version misattributed a comment in the 16th paragraph.)

With Google’s acquisition of Motorola Mobility now complete, a saga that Brad Stone and I explored in this week’s issue of Businessweek, a closer look at the history of the cell-phone maker — formerly one of the most admired companies in the world — could serve as a lesson for the online search giant as it maps its future.

In many ways, Google is the old Motorola. These days, Google is known around Silicon Valley as a company willing to invest in seemingly nutty ideas — from archiving the world’s books to inventing driver-less cars. For more than half a century, Motorola was also famous for making big, audacious bets.

In the 1930s, after two failed attempts to start battery companies, founder Paul Galvin hit pay dirt with the car radio (“Motorola” is derived from “motorcar” and “Victrola”). It dominated the two-way radio market, from walkie-talkies to the one Neil Armstrong used to proclaim his “giant leap for mankind.”

Again and again, the company was at the forefront of important new tech markets. It was a leader in TVs from the 1950s until it sold its Quasar brand to Panasonic in 1974 (a textbook example of knowing when to get out of a maturing tech market). It was a major force in semiconductors, including the microprocessors that powered Apple’s computers from 1976 through 2006. Motorola pioneered the two-way pager, and for years has been one of the top makers of cable set-top boxes.

All of these paled next to Motorola’s greatest hit, the cell phone. Then under the leadership of Paul’s son Bob, who was chief executive officer from 1964 to 1986, the company began investing in mobile phones in the 1970s, without so much as a focus group to check on demand, said Martin Cooper, who ran the division.

“Bob used to always say that you can’t build products that people ask for, because they don’t know they need them,” Cooper said.

At the time, few shared Motorola’s optimism. Chris Galvin, Bob’s son and the CEO of Motorola from 1997 to 2004, recalls that in 1978, McKinsey & Co. did a study suggesting that the cumulative number of cellular subscriptions through 2000 would be just 900,000.

Even after the company rolled out the first commercial cell phone model in 1983, many managers advised a go-slow approach, said Sandy Ogg, formerly Motorola’s senior vice president of leadership, learning and performance. Ogg now runs operations for private equity firm Blackstone Group.

The success was far more than just financial. Motorola’s stolid, Midwestern exterior may look stodgy relative to Google’s hipper vibe, but both were forces of progressive management thinking. In the late 1980s, Bob Galvin championed the Six Sigma quality management program that helped U.S. companies beat back competition from Japan Inc. Internally, the company coddled its innovators, giving them the freedom to pursue projects that is reminiscent of Google’s well-known 20 percent rule.

“If someone made a mistake when they were introducing something new, the Galvin philosophy was that they’d just become worth tons more to us than they were before, because we’d paid for their education,” said Chris Galvin.

No doubt, audaciousness can be expensive when the bets don’t pay off. Take the Iridium project, a phone service powered by a network of 66 satellites designed to be an “electronic skin around the earth,” in Bob Galvin’s words. While prescient, Motorola ended up losing billions of dollars on the project before selling it out of bankruptcy for $25 million.

But it was the lack of audaciousness that contributed to Motorola’s decline. As the cell phone industry went digital in the mid-1990s, Ogg recalled how some Motorola executives argued that consumers wanted analog, not digital, because it sounded better. Within just a few years time, Moto handed its market share lead to Nokia.

Then in 2004, Motorola designers came up with a bold, thin new design called the Razr. With good looks and an edgy TV ad campaign, it was enough to stand out in the final days of the pre-iPhone era. The company would sell more than 100 million of them over the next few years, lifting the company’s sales to an all-time high of $43 billion in 2006.

Still, Motorola would lose its way in the age of versatile devices such as the iPhone, even though it had been dabbling with touch screen-based models for years. It had even acquired a team of talented Silicon Valley techies from Good Technology to develop phones based on Google’s then-nascent Android software. Despite this, management stuck with the Razr and cranked out cheaper, less innovative versions that didn’t catch on and resulted in big losses.

“From where I sat, it looked like the starship had been turned into a crop duster,” said Jim Phillips, a former Motorola executive who is now CEO of NanoMech, a nanotechnology manufacturing company.

Motorola Mobility “has long been focused on making leaps forward in innovation,” according to a statement from Jennifer Erickson, a spokeswoman for the company. Beyond the world’s first cell phone and Razr, she also pointed to hit products including the Droid.

Google’s acquisition doesn’t mean the end of the Motorola name. The search giant will use the name on its phones, and telecom equipment maker Motorola Solutions remains.

Still, the fall in prestige is shocking to those who remember the better years.

“It was a heartbreak for me; I started that division,” said Cooper, widely considered the “father of the cell phone.”

When Bob Galvin, a tech superstar during Motorola’s heyday, died last October at age 89, the news coverage didn’t come close to the media attention given to Steve Jobs, who had passed away a week earlier.

Former Motorola President Mike Zafirovski said the passing of Apple’s co-founder overshadowed the loss of Galvin and his accomplishments.

“Bob deserved more,” said Zafirovski.

What’s the lesson for Google? To avoid being overshadowed itself someday, it needs to keep placing those big bets.

That’s certainly the philosophy Google has adopted so far. But learning from success is one thing. As it begins re-creating Motorola for its purposes, Larry Page & Co. can learn first-hand how a once-proud company goes from great to — in the case of Motorola’s cell-phone unit — gone.